BC Hydro’s credit rating stands, but debt concerns loom: Moody’s

Moody’s will be keeping a close eye on BC Hydro as it takes on debt to...

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Moody’s will be keeping a close eye on BC Hydro as it takes on debt to build the Site C dam, but it has upheld the Crown corporation’s Triple-A credit rating for the time being.

The agency has given the Crown corporation the same "prime" credit rating as the Province of British Columbia. The province guarantees BC Hydro's debt, meaning the two typically have the same credit rating.

According to Moody's, "the AAA credit assessment largely reflects the province's full ownership of BC Hydro and virtually all its debt," which the credit rater "views as linking the credit quality of BC Hydro closely to that of the government shareholder."

In a credit opinion issued last week for the B.C. government, however, BC Hydro was listed as a "growing contingent liability" for the province’s overall credit rating. According to Moody's, the utility's debt grew from $8.1 billion in 2008 to $18.1 billion this year. In the medium term, the agency expects BC Hydro will be able to support its debt without help from the province.  

However, "the anticipated increase in debt continues to pressure the province's rating, since it raises the contingent liability of (the B.C. government)."

"We note that should BC Hydro's financial position deteriorate, the possibility that it would require some support from the province will increase.

"We will continue to monitor BC Hydro's financial strength over the coming years through the construction and initial operations of Site C."

Site C spend to put 'upward pressure' on rates

Capital expenditures in the coming years, including on Site C, are expected to put an "upward pressure" on electricity rates, Moody's notes.

Over the next two fiscal years, BC Hydro will add around $3 billion in debt. The company has made "extensive" use of deferral accounts to keep rates flat as Site C is built, Moody's notes.

Hydro paid province $1.4 billion last year  

BC Hydro is also expected to make its roughly $1.5 billion in annual payments to the province without difficulty.

Those payments include a dividend, as well as "rental" fees for the use of public waterways. Critics say the dividend has turned BC Hydro into a "cash cow" for successive governments.

"The baseline credit assessment also takes into account BC Hydro's ability to independently support all of its outstanding debt, in addition to making aggregate payments (i.e. water rentals, non-income taxes, distributions) to the province, which during (fiscal year) 2015, totalled approximately $1.4 billion," the opinion states.

Adrian Dix says Site C is already over budget

During BC Hydro estimates last week, BC NDP critic Adrian Dix said the $8.8 billion Site C project is already over-budget—claims Energy Minister Bill Bennett said were "absolutely incorrect."

Dix said items deemed part of Site C's main civil works in previous designs—including spillways, intakes and penstocks—were not included in the $1.5 billion main civil works contract tendered last year.  

Dix said those "orphaned" projects are being paid for with contingency funds, meant to cover delays in construction and other unexpected costs.

"What they've done is used contingencies now to justify an overrun on the project which may well be $950 million already," Dix said. "In this case, it's the contingency that's trying to get the Liberal party through another election."  

Bennett dismissed Dix's claims as the "NDP narrative for Site C…regardless of what the facts are."

"Contingencies that are allocated to the various components of the project are still contingencies," he said April 7. "They're not spent, the contingencies are still there to be used as contingencies. They're there in a different form."

"(Dix's) conjecture or suggestion that somehow or other the contingencies have suddenly been spent is absolutely incorrect."

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